Why Outsourcing Makes Good Business Sense

One of the biggest challenges facing business owners is the continued performance of necessary but non-strategic critical functions such as payroll, human resources and information technology.

Business owners know that running a successful business requires much more than expertise in their trade. Often the most difficult challenge in business is keeping the firm’s critical functions running smoothly, including:

  • Payroll,
  • Accounting,
  • Human resources,
  • Collections, and
  • IT.

Many of these functions come with numerous subfunctions. Human resources, for example, includes recruiting and retention, training, leave management, benefits planning and administration — not to mention an array of compliance responsibilities. All of these are labor-intensive activities where expertise matters. And that expertise frequently can be obtained in a more cost-effective manner by turning to external service providers.

The potential benefits of outsourcing go far beyond expertise, though. The primary draw for most firms is reduced costs, which come from a variety of sources. Vendors can pass on the benefits of economies of scale and high-capacity utilization. They may also wield superior negotiating leverage when it comes to dealing with third parties. They also provide access to best practices and the latest technology without incurring the normal capital costs.

If you outsource functions, your firm may see reduced overhead and staff costs, including employment taxes, paid time off, benefits, salary and wages. Moreover, unlike internal staff, outsourcing partners are paid only for work performed — you won’t have to compensate them for being on vacation or idle time sitting at their desks!

Selecting vendors for outsourced services requires careful consideration. Not every vendor will be able to provide the functions and level of service you require. Begin by soliciting referrals from other business owners. Pay special attention to the experience of firms that are comparable to yours in terms of size and geographic area. Ask about vendor customer service. How do they react when problems arise? Do they resolve issues satisfactorily?

Also, analyze vendor fees and cost structures. Do they have a complex fee structure? Do they have hidden fees? Can the vendor adapt in case you expand or downsize in the future?

Once you’ve selected a vendor, it’s important to maintain frequent communication with the vendor through implementation and then regularly throughout the course of your relationship.

As businesses continue searching for greater efficiency and lower costs, outsourcing arrangements not only promote savings but can also provide your firm with a competitive advantage. Regardless of size, your firm might find that outsourcing makes good business sense!

©2019 Thomson Reuters